1367644--3/27/2007--Emergent_BioSolutions

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Risks Related to Our Dependence on U.S. Government Contracts We have derived substantially all of our revenue from sales of our BioThrax anthrax vaccine, our only marketed product, under contracts with the U.S. Department of Defense and the U.S. Department of Health and Human Services. If we are unable to obtain new contracts with and deliver BioThrax to these customers, our business, financial condition and operating results could be materially harmed. Our business may be harmed as a result of the government contracting process, which is a competitive bidding process that involves risks not present in the commercial contracting process. Our U.S. government contracts for BioThrax require annual funding decisions by the government. The failure to fund one or more of these contracts could cause our financial condition and operating results to suffer materially. The success of our business with the U.S. government depends on our compliance with additional regulations and obligations under our U.S. government contracts. The pricing under our fixed price government contracts is based on estimates of the time, resources and expenses required to deliver the specified doses of BioThrax. If our estimates are not accurate, we may not be able to earn an adequate return under these contracts. Unfavorable provisions in government contracts may harm our business, financial condition and operating results. Ongoing legal proceedings or any future similar lawsuits could limit future purchases of BioThrax by the U.S. government. Risks Related to Our Financial Position and Need for Additional Financing We have a limited operating history and may not maintain profitability in future periods or on a consistent basis. Our indebtedness may limit cash flow available to invest in the ongoing needs of our business. We expect to require additional funding and may be unable to raise capital when needed, which would harm our business, financial condition and operating results. Risks Related to Manufacturing and Manufacturing Facilities We have initiated a manufacturing facility expansion program. Delays in completing and receiving regulatory approvals for these manufacturing facility projects could limit our potential revenues and growth. BioThrax and our immunobiotic product candidates are complex to manufacture, especially on a large scale commercial basis, which could cause us to delay product launches or experience shortages of products. Disruption at, damage to or destruction of our manufacturing facilities could impede our ability to manufacture BioThrax, which would harm our business, financial condition and operating results. Our business may be harmed if we do not adequately forecast customer demand. If third parties do not manufacture our product candidates or products in sufficient quantities and at an acceptable cost or in compliance with regulatory requirements and specifications, the development, and commercialization of our product candidates could be delayed, prevented or impaired. Our use of hazardous materials, chemicals, bacteria and viruses requires us to comply with regulatory requirements and exposes us to significant potential liabilities. If the company on whom we rely for filling BioThrax vials is unable to perform these services for us, our business may suffer. Risks Related to Product Development Our business depends significantly on our success in completing development and commercializing product candidates that are still under development. If we are unable to commercialize these product candidates, or experience significant delays in doing so, our business will be materially harmed. We will not be able to commercialize our product candidates if our preclinical development efforts are not successful, our clinical trials do not demonstrate safety or our clinical trials or animal studies do not demonstrate efficacy. If we fail to achieve significant sales of BioThrax to customers in addition to the U.S. government, our opportunities for growth could be harmed. The commercial success of BioThrax and any products that we may develop will depend upon the degree of market acceptance by the government, physicians, patients, healthcare payors and others in the medical community. Political or social factors, including related litigation, may delay or impair our ability to market BioThrax and our biodefense product candidates and may require us to spend time and money to address these issues. We have a small marketing and sales group. If we are unable to expand our sales and marketing capabilities or enter into sales and marketing agreements with third parties, we may be unable to generate product sales revenue from sales to customers other than the U.S. government. We face substantial competition, which may result in others developing or commercializing products before or more successfully than we do. Legislation and contractual provisions limiting or restricting liability of manufacturers may not be adequate to protect us from all liabilities associated with the manufacture, sale and use of our products. Product liability lawsuits could cause us to incur substantial liabilities and require us to limit commercialization of any products that we may develop. If we are unable to obtain adequate reimbursement from governments or third party payors for any products that we may develop or to obtain acceptable prices for those products, our revenues will suffer. Any products we may develop may also be eligible for reimbursement under Medicaid. If the state-specific Medicaid programs do not provide adequate coverage and reimbursement for any products we may develop, it may have a negative impact on our operations. Foreign governments tend to impose strict price controls, which may adversely affect our revenues. If we fail to attract and keep senior management and key scientific personnel, we may be unable to sustain or expand our BioThrax operations or develop or commercialize our product candidates. Additional Risks Related to Sales of Biodefense Products to the U.S. Government Our business could be adversely affected by a negative audit by the U.S. government. Laws and regulations affecting government contracts make it more costly and difficult for us to successfully conduct our business. We rely on property and equipment owned by the DoD in the manufacturing process for BioThrax. Risks Related to Regulatory Approvals If we are not able to obtain required regulatory approvals, we will not be able to commercialize our product candidates, and our ability to generate revenue will be materially impaired. Our products could be subject to restrictions or withdrawal from the market and we may be subject to penalties if we fail to comply with regulatory requirements or experience unanticipated problems with our products. We may not be able to obtain orphan drug exclusivity for our products. If our competitors are able to obtain orphan drug exclusivity for their products that are the same as our products, we may not be able to have competing products approved by the applicable regulatory authorities for a significant period of time. The Fast Track designation for BioThrax as a post-exposure prophylaxis for anthrax infection may not actually lead to a faster development or regulatory review or approval process. Failure to obtain regulatory approval in international jurisdictions would prevent us from marketing our products abroad. Risks Related to Our Dependence on Third Parties We may not be successful in maintaining and establishing collaborations, which could adversely affect our ability to develop and commercialize our product candidates domestically and internationally. If third parties on whom we rely for clinical trials do not perform as contractually required or as we expect, we may not be able to obtain regulatory approval for or commercialize our product candidates and our business may suffer. Risks Related to Our Intellectual Property We may fail to protect our intellectual property rights, which would harm our business. If we are unable to in-license any intellectual property necessary to develop, manufacture or sell any of our product candidates, we will not be successful in developing or commercializing such product candidate. If we fail to comply with our obligations in our intellectual property licenses with third parties, we could lose license rights that are important to our business. If we are unable to protect the confidentiality of our proprietary information and know-how, the value of our technology and products could be adversely affected. If we infringe or are alleged to infringe intellectual property rights of third parties, it will adversely affect our business. Risks Related to Our Acquisition Strategy Our strategy of generating growth through acquisitions may not be successful. If we fail to successfully manage any acquisitions, our ability to develop our product candidates and expand our product candidate pipeline may be harmed. Risks Related to Our Common Stock Provisions in our corporate charter documents and under Delaware law may prevent or frustrate attempts by our stockholders to change our management and hinder efforts to acquire a controlling interest in us. Our stockholder rights plan could prevent a change in control of our company in instances in which some stockholders may believe a change in control is in their best interests. If our stock price is volatile, purchasers of our common stock could incur substantial losses. We do not anticipate paying any cash dividends in the foreseeable future. A significant portion of our total outstanding shares are restricted from immediate resale but may be sold into the market in the near future. This could cause the market price of our common stock to drop significantly, even if our business is doing well.

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1367644--3/27/2007--Emergent_BioSolutions_Inc.